UPDATE: Teddy Roosevelt: The secret of bargaining power
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Know when to walk away . . . and when to run
In negotiation it takes two to tango. Agreement occurs when—and only when—both parties feel that all things considered, the proposal on the table makes them better off than they’d be if they walked away or kept on talking.
In my field, your no-deal walk-away is called your BATNA. It stands for Best Alternative to a Negotiated Agreement. The idea has its roots in formal decision analysis. In practical terms it’s the path you’ll follow if you’re deadlocked.
The concept seems simple, but it’s often misunderstood. First of all, your BATNA is not necessarily your bottom line. Say you decide to sell your old car privately instead of trading it in. The lowest price you’d accept might be $5,000 if you sell to a stranger. Yet if the buyer were a neighborhood kid and this would be her first car, you might be happy to let it go for $4,500, maybe even less.
Likewise, in a business context. If you’re securing some goods or services, your walkaway number might well depend on how confident you are that the provider will deliver on his promises or if he’ll let you stretch out payments over time. Sure, your BATNA is one factor in setting the minimum you’d accept as a seller and the maximum you’d pay as buyer, but other considerations can affect those numbers, a little or a lot.
The second BATNA misconception is about bargaining power. The two are related but they are not equivalent. Having a good BATNA is a plus, of course. Say you’re negotiating with a prospective employer after already getting an outstanding offer from another firm. That takes the pressure off, naturally. And it may give you the courage to ask for an even better deal. If they say no, you’re still in great shape.
Other times your BATNA might be awful. If need a hotel room on a busy holiday weekend and your kids are carsick in the back seat, that wouldn’t be the time to insist the desk clerk give you the corporate rate (though that’s not to say you shouldn’t ask). But there are times where negotiators who’ve been dealt bad hands nevertheless land terrific deals. The classic example involved Theodore Roosevelt (TR) in his 1912 presidential campaign. It still offers powerful lessons today.
The problem
TR was US President from 1901 to 1909. He was eligible in 2008 to run for another term yet chose not to. His former Vice-president, William Howard Taft, succeeded him. Four years later Roosevelt got the itch to return to the White House, but powerbrokers in his own party favored re-electing Taft, and the Democrats were in the process of anointing Woodrow Wilson as their candidate.
TR, still immensely popular, needed an alternative. He helped found the Progressive (or “Bull Moose”) Party and recruited Hiram Johnson as his running mate. A month before the election his campaign was all set to print three million copies of pamphlet that would include a recent Roosevelt speech and on the front page, striking photographs of TR.
The pamphlets were to be distributed nationwide when someone on the staff noticed that the photo was copyrighted to the Moffett Studios in Chicago. If the pamphlets were distributed without Moffett’s permission, that would violate copyright law. The candidate and the campaign could be liable for a fine of $1 per copy, three million dollars in all. Their alternatives were terrible.
· Option A: Create a new pamphlet with new photos. That would costly and, more important, burn precious time in the late days of the campaign.
· Option B: Distribute the Moffett pamphlets in the hope they wouldn’t be caught. That would be wrong, of course, and put TR’s reputation at risk.
· Option C: Reach out to Moffett hat-in-hand, fingers crossed that the photographer would not demand an extortionary amount.
At first glance this may seem like an exercise in picking the least worst of a bad set of alternatives. But give this a little thought. If you were briefly time-capsuled back to that moment, what you would advise the campaign? Oh, one more thing. Let’s say they choose Option C, going to Moffett Studios, how would you advise them to begin the negotiation?
The solution
Here’s what happened. TR’s campaign manager George Perkins sent a telegram to the studio.
Perkins said: “We are planning to issue an edition of three million copies of Roosevelt’s speech, with pictures of Roosevelt and Johnson on the front page. This will be a great advertisement for the photographer. What will you give us to use your pictures? Rush answer.”
Moffett quickly answered: “We have never done this before but under the circumstances we will be pleased to pay you $250.”
Perkins did three things well. First, he recognized that as bad as their own BATNA was, the campaign had leverage in the form of holding an asset (publicity) of value to Moffett. Second, he recast himself as the seller, not the buyer. Third, more subtly, but no less important, he kept his options open.
Moffet apparently was struggling financially at the time and needed a boost. Had it been in better shape, the studio might have declared that it never pays others to use their work. But that wouldn’t have ended the conversation. Perkins still could have pressed for free use or a deep discount.
The punchline. Your bargaining power isn’t just about whatever cards you’ve been dealt. It’s how you play them. It’s something you can proactively enhance by:
Bringing a solid reputation and credibility to the table;
Recruiting allies to support your endeavor;
Creatively expanding the pie so that both parties benefit; and
Improving your own BATNA, of course.
There is another lever, as well, though it should be used sparingly if it all: namely, sabotaging the other party’s BATNA. You see this litigation. One party files a lawsuit suit figuring that the cost, delay, and uncertainty in going to court will force the other party to buckle. That’s one possibility. Another, though, is that their adversary retaliates in kind. Both parties may end up in a sunk cost pit where each person’s only consolation is the belief the other guy is suffering even more than they are.
Your bargaining power can wax or wane depending on circumstances and the steps you take to improve it. It also is a matter of perception. Beware of falling into the self-fulfilling prophecy trap.
An afterthought
One of the pleasures of reviewing familiar material seeing a new slant on it. I read about the Moffett Studio story long ago in a TR biography, Departing Glory, by Joseph Gardner. Writing this article now, something just occurred to me: I think it’s significant that the deal was made via telegram.
George Perkins had the chutzpah to ask that the studio pay him for using the photos that they rightfully owned. But could he have pulled that off in person? If it were me instead of Perkins, I’d have trouble keeping a straight face.
Beyond that, the telegram at the advantage of brevity. Perkins sent a blunt message, not a wordy proposal. It demanded a thumbs up or thumbs down.
Telegrams are a thing of the past, of course, yet they’re not altogether different from the tweets and emails of today. In an upcoming article I’ll dive into how AI and other computer-based technologies are changing how we express ourselves, including when we negotiate remotely.
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Many thanks!
Mike